Doing business in africa

Doing business in Africa
Business opportunities for SME
www.bakertillyberk.com/africa www.nabc.nl
DOING BUSINESS IN AFRICA
DOING BUSINESS IN AFRICA
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Africa is seen as ‘the last frontier’ when
it comes to business and investment.
Baker Tilly Berk and NABC both notice
an increasing interest among Dutch
entrepreneurs to start doing business in
Africa. “I’ve had a special relationship
with Africa since I first set foot in Tanzania,
many years ago,” recalls Marijn
Verhagen, who founded Baker Tilly
Berk’s Africa Desk.
“Despite a certain economic slowdown
I still notice that companies do consider
doing business in Africa,” Mr. Verhagen
said. “This interest is not really sector
specific, I’ve had questions from a wide
variety of businesses.” Also NABC Managing
director Irene Visser, who herself
has been active on the continent for
nearly 20 years, says the enthusiasm
among members continues to be high.
“To us the main question is not if, but
when ambitious companies start looking
at Africa,” Ms. Visser said.
Mr. Verhagen has identified a group of
frontrunner countries which he says
generate a lot of interest from Dutch
entrepreneurs. “They clearly see Kenya,
Ghana and Nigeria as the main entry
points for Africa. Another country which
has that reputation is South Africa.”
NABC’s Managing Director Ms. Visser
also witnesses that trend, but says
Dutch companies too often overlook the
possibilities in Francophone and Portuguese
speaking Africa. “We recently
ignited a 3-year trade and investment
encouragement and facilitation project
with the Sahel countries Mali, Niger and
Burkina Faso. Over 50 companies from
The Netherlands came to our business
forum to connect with an incoming delegation
from those three countries,” said
Ms. Visser, who lived in Mozambique for
over a decade.
Many African countries offer tax incentives
in their efforts to convince foreign
firms to set up shop. “Most of the
African countries do that, because they
are eager to get investments that result
in job creation and economic growth.
A trend is that tax agencies across Africa
are becoming more and more professional,
which brings clarity to the investors
and will have a positive impact,” Mr.
Verhagen said. Ms. Visser concludes:
“We encourage all Dutch companies to
consider investing in Africa. NABC and
Baker Tilly Berk are always there to provide
guidance or answer your questions.”
Preface
‘‘‘To us the main question
is not if, but when ambitious
companies start looking
at Africa’
Irene Visser - NABC
Marijn Verhagen
Tax partner Baker Tilly Berk
Irene Visser
Managing director NABC
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Covering 20% of the globe’s area,
Africa accounts 6,5% of world’s mineral
exports. A sharp rise in extraction activities
in Africa from 2000 - 2011 resulted
in the continent receiving 15% of global
exploration expenditure and mining investment
during 2012. At present, local
energy generation is still largely dependent
on fossil sources, but renewable
sources are becoming increasingly available
which could prove to be a major
factor in accelerating industrialisation.
Petroleum and natural gas
Petroleum and petroleum products
accounted for 46.6% of Africa’s total
exports in 2010; the second largest
export of Africa as a whole is natural
gas. In its gaseous state and as liquefied
natural gas, it accounts for 6.3% of
Africa’s exports. Petroleum and petroleum
products are the main export of 14
African countries.
Growth driver 1: Extractive industry
Growth driver 3: Agribusiness
Growth driver 4: Manufacturing
Growth driver 5: Services industry
Growth driver 2: Infrastructure
World’s second fastestgrowing-
region
This was caused primarily by two large
African economies staggering the
average: the decline in oil prices hitting
exporters, and the political turmoil
caused by the Arab Spring (Egypt, Libya,
and Tunisia). The remaining African
economies actually accelerated to 4.4
percent in the 2010-2015 period, from
4.0 percent in the 2000-2010 period.
According to the IMF, Africa is predicted
to be the world’s second fastest-growingregion
between 2015 and 2020.
Growth drivers
The top five exports of Sub-Saharan
African countries [petroleum, iron ore,
minerals, gold, natural gas] consisted of
non-renewable natural resources, and
accounted for 60 percent of all exports
in 2013. That noted, it is logical that
Africa’s primary growth drivers in the
coming decade are forecasted to be:
infrastructure, agribusiness, manufacturing
and the services industry.
The economy of Africa consists of the
trade, industry, agriculture, and human
resources of the continent. It is also
rich with raw resources. The World
Bank projects continental GDP to increase
by an average 4 percent
annually between 2013 and 2023.
In a separate trajectory, the fact that
Africa’s overall GDP growth averaged
3.3 percent between 2010 and 2015,
reveals a marked divergence.
Africa’s Pulse
Due to a lack of infrastructure, energy
production is far from meeting its maximum
capacity. In 2012 there were
800 active major infrastructure projects
across the continent with the momentum
only building in the past four years.
Africa’s transport infrastructure both rail
and road is lagging compared to the rest
of the world though there are projects
underway to improve both national and
regional connectivity. One of the most
important factors in Africa’s future development
will be increasing cross border
trade, both within Africa and with the
rest of the world.
Increase power access
The Program Infrastructure Development
for Africa (PIDA), works to reduce
energy costs and increase access; their
expected outcomes include reaping
savings on electricity production costs
of $30 billion a year, or $850 billion
through 2040. They also expect that
power access will rise from 39% in
2009 to nearly 70% in 2040, providing
access upwards of 800 million people.
Contrary to popular belief, agricultural
production in Africa has increased steadily:
its value has almost tripled over
the last 30 years (+160%). Agriculture
is still the backbone of many African
economies, generating 25% of GDP on
average in Sub-Saharan Africa - and
much more in many countries. The
African agriculture sector has continued
to absorb a large proportion of the working
population, and will have to continue
doing so, since a very large number
of young people will be entering the
labour market.
Agricultural expansion
Sub-Saharan Africa has approximately
200 million hectares of uncultivated
arable land, nearly half of global availability,
meaning that Africa is poised
for exponential agricultural expansion
- unlike many other parts of the world.
Relative to this, two-thirds of the global
farmland area of interest to foreign investors
is located in Africa, primarily in
Sudan, Tanzania, Mozambique, Ethiopia
and DRC.
While production is steadily increasing
locally, imports are valued at 1.7 times
that of exports. Imports consist predominantly
of meat, dairy products, cereals
and oils. Africa can expect to reduce the
gap in their import/export values as the
manufacturing sector accelerates. It is
estimated that the continent could double
its manufacturing output in a mere ten
years; this would result in an increased
GDP and productivity growth and an
estimated 6 to 14 million stable jobs.
Primary source of income
The African agriculture sector has continued
to absorb a large proportion of
the working population, and will have
to continue doing so, since a very large
number of young people will be entering
the labour market. There is a trend towards
more commercial as opposed to
subsistence farming though subsistence
farming is still predominantly the primary
source of income and labour for most
rural African communities. Agriculture
will continue to be a significant source
of income and economic development
for a number of countries across Africa,
in the short, medium and long term.
The services industry accounted for a
whopping 45% of Africa’s GDP in 2013,
and is considered to be the fastest
growing sector in most African economies.
The growth in the telecommunications
sector has introduced new technology
to rural areas, thereby bringing
modern economic processes with them.
Financial services based upon innovative
business models are also thriving.
The majority of these services capitalize
on the financial capacity of African
consumers by utilising communication
technology to usher in mobile financing
and mobile banking.
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DOING BUSINESS IN AFRICA
√ Lack of infrastructure
Infrastructure remains one of the largest
barriers for African businesses. Africa is
perhaps the most expensive region for
transport. Although it has many ports,
a lack of supporting transportation
infrastructure as well as inadequate
administrative systems, incurs 30-40%
of costs. However, many large infrastructure
projects are now underway
across Africa aiming to ‘unlock’ Africa’s
potential. Many of these projects are
in the production and transportation of
electric power as well as in roads and
highways, railways, airports, and telecommunications.
√ Access to a mobile phone
It was predicted that by the end of
2014, nearly 600 million Africans
owned a mobile phone with an
estimated 15 percent of those being
smart phones (Pew Research
Center, 2015). Access to a mobile
phone and a smart phone at that is
revolutionising a number of sectors
across the sector such as banking and
agriculture by and large due to the ease
of access it provides to both services
and markets.
√ Trade corridors
Transport efficiency gains are expected
to reach an excess of $172 billion, with
the potential exponentially larger savings
once trade corridors open. The PIDA
is also expected to bolster broadband
connectivity by 20 percentage points,
strengthening connections between
goods and markets between people and
jobs.
In order to address the challenges of
doing business in Africa, governmental
bodies are pushing for reforms and new
jurisdiction to ease inhibiting factors.
One such recent example of this is the
ratification of the Tripartite Free Trade
Area Agreement (TFTA) in June 2015.
The TFTA Agreement brings together
the member and partner states of the
Common Market for Eastern and Southern
Africa (COMESA), the East African
Community (EAC) and the Southern
African Development Community
(SADC), representing 51 percent of the
continental GDP and 26 countries. It is
built on three pillars: market integration,
infrastructure development and
industrial development.
Free trade facilitation is expected to
increase intra-regional/African trade and
increase foreign direct investments. The
creation of the TFTA is important in the
context of Economic Partnership
Agreements (EPAs), as it would avoid
a potential situation in which EU goods
could enjoy better access to local
markets than products originating in
other African RECs, with potential
negative effects on African producers.
Bottlenecks & Risks of Doing Business in Africa
Ready to invest
“African companies knock on our door
after a discouraging experience when
exporting to Europe” says Postma. “We
know for example that part of the Fresh
Fruits and Vegetables (FFV) that come
from Africa do not meet the standards,
and have to be destroyed upon arrival.
However, these issues can be eliminated.
Before considering the export market,
each entrepreneur has to make a
strategic decision: If I want to export to
the EU, am I ready to invest and meet
all the standards?”
Guiding importers
Next to helping African companies eager
to export, SGS is also involved in guiding
importers to the African market.
Traditionally, a number of African countries
hired external companies such
as SGS to assist their customs organizations.
Over the past years this type
of service has decreased because the
importing countries have become more
self-sufficient, but also because the external
organizations have become more
focused on other types of support, such
as product quality and conformity assessments,
or IT-related supply chain
solutions such as ‘single window’ programs
that simplify import procedures.
Development of international
trade
Postma: “We notice the increasing interest
from large companies willing to do
business in Africa and African countries
- a region which is currently putting
more emphasis on raising their quality
standards, and working hard to ban
substandard quality where possible. It
is encouraging to observe these positive
developments towards a better protection
of the consumer and development
of the international trade”
As an increasing number of African companies wish to export products to Europe, it is important to emphasize the strict
importing rules that apply. We had a talk with Eddy Postma of SGS - the world’s leading inspection, verification, testing and
certification company - about current exporting issues.
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‘Carefully check import
and export requirements
before entering the market.’
Eddy Postma - SGS
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One of the most important
factors in Africa’s future
will be increasing cross border
trade, both within Africa and
with the rest of the world.
“Increasingly, I see Dutch companies
trying to exploit the opportunities - opportunities
in abundance - that the
African continent offers as an expanding
market. On the other hand, doing
business in Africa is also complex and
challenging, not least because of the tax
aspect. Thorough preparation is essential.
I’ve set out a number of points
below to demonstrate the tax challenges
and opportunities for an entrepreneur
wanting to do business in Africa.
• Be aware of high taxes levied
on income at source
Practically all African fiscal systems
apply high taxation to outgoing flows of
money. Western economies generally
limit taxation at source to dividends,
royalties or interest, but in most African
countries, any arbitrary flow of money
crossing a border is subject to taxation
at source. The rates are also often very
high; 20% or higher is not exceptional.
Tax at source is applied to the gross flow
of money (therefore before the deduction
of any costs), so that tax payments are
extremely high. On top of that, most of
the taxation on income at source is not
creditable by the receiver of the flow of
funds, or only to a very limited degree.
• Set out the pros and cons of
forming a local entity
Starting activities by means of a branch
instead of a separate legal entity can
reduce the impact of high taxation at
source. Flows of money between a
branch and the primary establishment
are normally disregarded, fiscally speaking,
so no taxation at source is applicable.
Nevertheless, you have to be careful:
setting up a branch can also have
disadvantages. Certain African countries
apply a higher rate of corporation tax to
branches than to legal entities. Set out
the pros and cons in detail beforehand
in order to make a well-considered decision.
• Also make use of tax advantages
for foreign investors.
Many African countries are trying to
attract overseas investors with attractive
tax legislation and regulations. For
example, Ghana has free trade zones,
Nigeria offers a ‘pioneer status’ for new,
innovative investment and Ethiopia and
Tanzania encourage foreign investment
by exporting companies with ‘tax holidays’.
This legislation and regulation often
means that there is less of a burden
of compliance, that rates of corporation
tax are lower and that taxation at source
is low or non-existent. My advice is to
start a research on beforehand, whether
the country you want to do business
in has a special set of rules for foreign
investors. In addition, you have to find
out what you have to do to apply for
these rules.
• Make sure that you don’t
become subject to local taxation
The liability of foreign companies to pay
local taxes on profits only arises if there
is a ‘permanent establishment’. The
OECD has developed several standards
and conditions that must be met, before
a business can be regarded as a ‘permanent
establishment’. These standards
are adopted by most western countries
and only diverge from them to a very
limited degree. This is often not the case
in Africa. Entering into just one contract
or carrying out just one project for a
couple of months, could lead to a classification
as a permanent establishment,
and as a consequence of that, this
could lead to liability of tax. Although
the Netherlands has various tax treaties
with African countries that often apply
the term ‘permanent establishment’ in
accordance with the definition used by
the OECD, it is often not a reason for
various African countries not to levy
taxes. You have to find out in what way
the country you want to do business in,
defines and applies the term ‘permanent
establishment’.
To conclude: Africa is big. The continent
includes an enormous diversity of
countries, each with their own cultures,
customs and tax rules. It is impossible
to provide a complete overview of the
challenges in respect of taxation with
which the entrepreneur can be confronted.
What I want to emphasize is that
doing business in Africa is often different
than doing it in Western Europe. Be prepared
of the differences and do not let
the conquer of this enormous expanding
market become a tax disaster.”
Tax challenges and opportunities in Africa
Marijn Verhagen - Tax partner Baker Tilly Berk
DOING BUSINESS IN AFRICA
The specific regions of West, East, and Southern Africa have great potential for
Dutch Entrepreneurs. For each region we give some insights and examples of Dutch
entrepreneurs that operate in these regions.
• West Africa page 10
• East Africa page 12
• Southern Africa page 14
Overview per region
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Population
• 2016: approximately 332 million
• 2020: projected to reach 430 million
• 2040: go beyond > 500 million
• Ivory Coast, Ghana and Nigeria
account for 80% of West Africa’s
exports to the EU.
• Export: In terms of sectors, West
Africa’s exports to the EU consist
mainly of fossil fuels and food
products. EU is the main export
market for West African agricultural
and fisheries products.
• Import: West Africa’s imports from
the EU consist of fuel, food products,
machinery, and chemicals and
pharmaceutical products.
• EU - West Africa trade in services
is expanding, most notably in transportation
and logistics, travel, and
business services.
• EU’s largest trading partner in
Sub-Saharan Africa
• Most important investment
destination for the EU in Africa
Economic growth
GDP: 675 billion (2013)
Projected growth for 2017
is 5.1%
Francophone Africa
Education and service sector lags behind
because of language barrier, but there is
a First-mover Advantage for companies
that are willing to pioneer. A first-mover
advantage can be simply defined as a
firm’s ability to be better off than its
competitors as a result of being first to
market in a new product category.
By being there first, you can reap the
following advantages: a low degree of
competition; the ability to influence the
operating environment; the ability to
achieve major brand recognition; market
leadership acts as deterrent for others.
West Africa
Ron de Bruijn - Big Machinery
‘Doing business in Francophone Africa is quite different’
Jan Arie Nugteren - East-West Seeds
‘You won’t become a millionaire overnight’
Ron de Bruijn has been working in
Africa for almost two decades and has
visited nearly every country on the
continent. De Bruijn, a fluent French
speaker, acts as Sales Manager Africa
for Big Machinery, and spends a lot
of time in West Africa. Based on his
extensive experience, he maintains that
the main difference between West
Africa and the rest of the continent is
the language.
French standards
“The majority of West Africa is Francophone,
although there are exceptions
like Ghana and Nigeria. What you see in
the Francophone countries is that they
still have very strong ties with France;
politically, culturally and business-wise.
They use a lot of French standards when
it comes to products. In general, I find
the Anglophone countries a bit more
resolute.”
Protocol
“In West-Africa you see a lot of protocol,
things take more time while elsewhere
you see countries that are a bit more
hands-on. Once again, there are also
exceptions here. Ivory Coast is currently
having a political climate where things
are getting done, while I also see a lot of
good developments in Senegal. I really
think a lot of these things still find their
origin in the colonial times. Industrial
areas in England look more like the ones
in Africa: shabby, but everything works
or gets fixed right away. The French
normally need to send in ten consultants
before anything gets done.”
“We are a producer and distributor
of tropical vegetable seeds and we
operate in 64 countries, all in the
tropical world. Most of the production
takes place in Asia, while we distribute
throughout Asia, Latin America and Africa.
I am responsible for West-Africa,
a region which I have known for over
three decades.”
Have patience
“The main thing I have learned while
doing business there, is to have patience.
You won’t become a millionaire
overnight. Sometimes three steps forward
are followed by two steps backward.
Our company finds it a challenge
to find reliable distributors, who have
enough capital, influence and knowledge
of the products. Then there is the issue
of political stability, which is not always
consistent in the region. On the other
hand, we still sell quite a lot of seeds to
a country like Mali.”
Low oil prices
“Currently, the low oil prices are having
an effect, most clearly in Nigeria. Therefore,
it is hard for local companies to
get access to US Dollars. That is quite a
change from a few years ago when they
had plenty of petrodollars. This means
the orders are getting smaller.”
Investment in agriculture
“Recently a minister from Nigeria asked
me my opinion about Nigeria’s agriculture
sector. I told him that it was
extremely promising. There are a lot of
opportunities but, this has been my opinion
for the last 15 years, and too little
has changed! Nevertheless, I am very
serious about this: Africa can easily feed
itself if there is more investment in agriculture.
This will decrease dependency
on food imports, and therefore it should
get a priority. We are upbeat about
West African countries such as Senegal,
which is a very stable democracy, Ivory
Coast, which is resurrecting remarkably
after a civil conflict, and Ghana, which
is keeping up the pace despite their own
oil-related struggles.”
Ghana
Steady Democracy, good DB ranking &
MI Ranking. Exports a lot of agricultural
products and imports a significant amount
of machinery and equipment from the
Netherlands. Popular hub to serve West-
Africa for a lot of European companies.
Nigeria
Low oil prices have hit Africa’s largest
economy severely, but the government
is now faced with diversifying its economy.
The top exports of Nigeria are
Crude Petroleum ($74B), Petroleum Gas
($13.2B), Refined Petroleum ($4.23B),
Pyrophoric Alloys ($1.9B) and Special
Purpose Ships ($1.25B), using the
1992 revision of the HS (Harmonized
System) classification. Its top imports
are Refined Petroleum ($7.83B), Cars
($1.75B), Wheat ($1.46B), Motorcycles
($877M) and Iron Structures ($780M).
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Population
2016: 406 million people
• Exports: to the EU from the East African
Community are dominated by
coffee, cut flowers, tea, tobacco, fish
and vegetables
• Imports from the EU into the region
are dominated by machinery and mechanical
appliances, equipment and
parts, vehicles and pharmaceutical
products
• East-Africa provides for both the
Doing Business and the Mo Ibrahim
Rankings both the best African performers
(Rwanda, Kenya) as the worst
performers (eg. Eritrea, South Sudan)
All the countries in the
East African Community are
members of the WTO
Economic growth
GDP: 147.5 billion
Projected growth for 2017
is 5.4%
East Africa
Egbert de Groot - Mueller tanks
‘We will soon launch our solar-powered milk tank’
Leontine van Hooft - GreenDream Company
‘Don’t be afraid of competition from China’
“In The Netherlands, we only produce
large milk-tanks. The smallest of them
contains 10.000 litres. When we first
thought of entering the African market,
we found out that the needs there are
totally different. They have a specific
need for much smaller tanks that can
basically hold between 500 and 5.000
litres.”
High-tech milk tanks
“When we were notified about a tender
in Uganda, where the Dutch and the
Danish Governments sponsored the
purchase of tanks in an effort to professionalise
the dairy sector, we were suddenly
faced with the task of providing
high-tech milk tanks to Uganda. Since
this type is not produced in The Netherlands
anymore, we have outsourced production
to India - another market where
small tanks are on high demand.”
Increase milk production
“To us it was fascinating to see how
much impact we had. Imagine a region
which has very little infrastructure or
electricity, and then suddenly a new
state-of-the-art cooling facility is set up.
This equipment, powered by a generator,
keeps milk at 4 degrees throughout
the day. This ensures that it can be
transported to collection centres and
does not get spoiled - which used to
happen in the past. The tanks have increased
production because the storage
facility had indeed a stimulating effect
on the farmers. Our next step is a milk
tank that works on solar power - we are
currently testing it and we hope to get it
in production in early 2017.”
“Our attention was initially drawn
to East-Africa by our own contacts
- friends who know the region well.
These people included members of
the African diaspora. After consulting
with them, we chose which countries
we wanted to invest in. We specialize
in setting up ecotourism projects and
leisure hospitality firms. We found
excellent opportunities in Ethiopia and
Rwanda.”
Invest in good cooperation
“We are in the process of setting up
Cultural Experience Park, a theme park
in Rwanda which should become the
first of its kind in the region. My advice
is to invest in good cooperation with
local partners, because when working
together you increase your chances of
being successful. The Rwandan government
already had plans for setting up
a ‘cultural village’ when we got in touch
with them. However we realised that
the business model was not yet feasible,
so we extended these plans to make a
full-scale park. This is not just meant
to be an ‘African Disney’, and therefore
was created with a strong educational
component.”
Regional audience
“What is important to realise before
entering the market in Africa is whether
there is a middle class. Cultural Experience
Park is not only meant to draw
primarily foreigners, but it is mainly
meant for a local or regional audience.
Finally, I think we are sometimes too
afraid of competition from China. When
I ask Dutch construction companies
whether they want to participate in a
project; they often say they fear losing
out tenders to the Chinese. I think we
need to be more self-confident. There
are long lasting relations between The
Netherlands and Africa. For example,
many civil servants in Kigali have studied
in The Netherlands - and therefore
they are very approachable.”
Partners
“I see a strong rise of African SME’s.
Soon they will come to Europe to look
for partners, and it won’t only be oneway
traffic of Dutch companies which
want to set up things in Africa anymore.”
Rwanda
Rwanda scores very high on the World
Bank’s Doing Business Ranking and Mo
Irbrahim’s Good Governance Ranking.
They overtake European countries like
Italy in ease of doing business. One of
the fastest growing economies in East
Africa, Rwanda notched up GDP growth
of around 8% per year between 2001 and
2014 (Hutt, 2016).
Ethiopia
Ethiopia is another strong country, with
strong exports in Refined Petroleum
($1.08B), Coffee ($842M) and Oilseeds
($724M). Another interesting fact is that
due to its religious demographic, with a
large percentage of Christians, Ethiopia
attracts a lot of religious investors.
Kenya
Kenya leads the way in the EAC, economically and technologically. Many Dutch
farmers moved to Kenya and started a booming horticulture business, making the
Netherlands the biggest trading partner outside Africa for Kenya. ICT: Kenya is
ranked in the top three amongst African tech hubs, with a total of 27 as of August
2016 (Dahir, 2016). Its mobile payment provider M-pesa has been heavily involved
in helping the country to yield a 70 percent financial inclusion rate. The coalescing
between entrepreneurs, innovation hubs, telecom operators and giant tech companies
is underpinning the rise of a thriving tech industry (Dahir, 2016).
DOING BUSINESS IN AFRICA
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Population
2016: 163 million people
• Export to EU: items include petroleum
oils, agricultural products, electricity
and some clothing and textile
products.
• Main export items to the rest of the
world consist predominantly of export
of resources (e.g. coal, ferrochromium,
manganese ores, platinum,
as well as precious metals and
diamonds), resource intensive
manufactured goods, mainly for the
automotive industry, clothing and
textiles, and tobacco.
Southern Africa
Adriaen Sligcher - Pas Reform (South African branch)
‘South Africa is the perfect launching platform’
Joris van Ooijen - Moba
‘Come up with a unique product’
“We have set up the South African
branch of Dutch poultry-equipment
producer Pas Reform. South Africa is
by far the most developed country on
the continent, so it is the best base
you can think of. There are loads of
business opportunities here in South
Africa, although competition is also
higher.”
Launching pad into Africa
“You can by no means compare South
Africa to the rest of the continent. Financial
services are great and there are
direct flights to all African countries.
South Africa is a launching pad into
other African countries. Practically seen:
the African banks all have branches in
the rest of the continent, which is also
helpful. Other countries in the region
with a high potential are Zambia and
Zimbabwe, although the latter needs
political change. Namibia is quite stable,
and can be used as a step before entering
the market in Angola.”
Create presence
“My advice to new Dutch businesses
coming to my home country of South
Africa would be to make sure you create
presence on the ground. So if you are
not able to shift your main office, make
sure you enter into a joint venture with
a partner you can trust. When the deal
has enough to offer for both of you, you
can be highly successful.”
“We set up an agency for our company
in South Africa in the 1960’s, after we
saw that they had a very advanced egg
industry here. There is quite a large
local consumption here in South Africa,
and the country is understanding the
value of grading and packaging eggs.
In general South Africa is very good for
business because it is stable.”
Work with a local partner
“On the other hand, we have seen the
exchange rate of the Rand rising steadily
in recent years and currently the
rate is pretty volatile. This means our
prices have gone up, which makes it
harder to compete with local suppliers.
My advice to newcomers would be to
work with a local partner who is very
well aware of the local circumstances,
and knows where the possibilities can
be found. And finally: make a unique
product which is not yet available in the
country.”
Mauritius
The Heritage Foundation ranks Mauritius
15th in the world and first in Sub-Saharan
Africa in terms of sound legal framework
and rule of law. Additional strengths in the
Mauritian market include political stability,
its strategic location in the Indian Ocean,
and its secure investment location.
South Africa
Many of the Southern African Development
Communities, economies are tightly
interwoven and dependent on the economy
of the region’s ‘lion’. According to
the World Bank South Africa is the second
largest economy in Africa, contributing
approximately 15% of the continent’s
GDP. It is also much more closely integrated
with the global economy, a feature
that provides further opportunities for
growth and development.
Mozambique
FDI and government spending in major infrastructure
projects are the main causes
of growth. According to the World Bank,
in 2013 Mozambique was the second biggest
recipient of FDI in Africa with almost
USD 6.7 billion. The most dynamic economic
sectors are: extractives, financial
services, construction, transport and communication.
The highest share of total
Southern Africa exports over
time is to the Asia Pacific
Market, followed by the
EU market.
Economic growth
GDP: 383 billion
Projected growth for 2017
is 3.1%
DOING BUSINESS IN AFRICA
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16
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Share knowledge and advice
“We see a trend that Dutch entrepreneurs
follow each other, for example
in Ethiopia there are quite a number
of Dutch companies present. A critical
mass of foreign investors reduces the
entry barriers, especially if the companies
are operating in the same sector. If
a Dutch entrepreneur starts a large commercial
dairy farm, that opens up possibilities
for other industries like dairy or
packaging. In such a cluster companies
can make each other stronger. They also
share a lot of knowledge and advice.”
Language barrier
“In West-Africa there are only a few
Dutch entrepreneurs - which also has to
do with the language barrier. Generally
the Dutch do not speak a lot of French.
West Africa is quite close to Western
Europe, which is a benefit for agricultural
companies that want to export. My
advice to companies looking to establish
operations in West Africa would be
to use one of the larger economies of
West-Africa as a hub. Ghana and Nigeria,
both English speaking, would be the
preferred choices, or Ivory Coast. Ghana
and Nigeria have strong and active
Dutch embassies, which is very helpful
for businesses. However Nigeria and
Ghana currently have difficulties due to
the low commodity prices.
John Lindhout is Investment Manager at Incluvest, which invests in SME’s in countries in Africa, Asia and Latin-America.
“Every region and country in Africa has its own dynamics. West-Africa is attractive for us, because of the stability of the
currencies (CFA pegged to the euro), the consistency in the legal systems and the increasing integration and harmonization
within ECOWAS. So when you are financing a company there, you don’t have a big risk with currency devaluation and you
know that the rules are not being changed day overnight. This is quite different from other countries. Back in 2010 and
2011 we had a currency devaluation of 30% in Ethiopia, meaning you would have lost a lot of money on your financing and
investment value.”
‘Use Ghana or Nigeria
as entry-point’
John Lindhout - Incluvest
The Doing Business Index
(DB global)
The Doing Business Index provides objective
measures on the ease of doing
business for local firms in 189 economies.
They rank and provide data on
various business regulations and their
impact on doing business for each location.
A high ease of doing business ranking
means the regulatory environment
is more conducive to the starting and
operation of a local firm.
The Mo Ibrahim African
Governance Index (IIAG)
The Mo Ibrahim African Governance
Index provides an annual assessment
of the quality of governance in every
African country. The IIAG consists of
more than 90 indicators used to inform
one overall measurement of governance
performance. These indicators include
official data, expert assessments and
citizen surveys, provided by more than
30 independent global data institutions.
The IIAG allows users to benchmark
governance performance across various
dimensions at national, regional and
continental level.
Investment climate
Ethiopia - 146 DB global
- 44.9 IIAG
Kenya - 108 DB global
- 58.8 IIAG
Rwanda - 68 DB global
- 48.6 IIAG
Mozambique - 133 DB global
- 52.3 IIAG
Mauritius - 32 DB global
- 79.9 IIAG
South Africa - 169 DB global
- 44.9 IIAG
Nigeria - 169 DB global
- 44.9 IIAG
Ghana - 114 DB global
- 67.3 IIAG
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Tips for doing business in Africa
Pole pole
Africa is not the continent of quick wins,
they can be found but it is rare, to do
business here you must adjust your
pace. “pole pole” in Swahili, means
‘persevere and you will succeed.’ Take
the time, to build up relations, get to
understand how local business works
and find the right business partners!
Cooperate with
local partners
Almost no business can “copy-paste” its
business to Africa. Be sure to cooperate
with trustworthy local partners. Find
local partners through matchmaking
during trade missions, business development
trips or by making use of the experiences
or recommendations of others.
Utilise the local knowledge of your partners
to pivot your strategy to the specific
circumstances.
Have a firm
CSR Policy
Particularly on the African continent it is
becoming more and more important to
have a well embedded Corporate Social
Responsibility policy. Through local job
creation and contributions to improvements
in production technologies,
safety procedures and e.g. food hygiene
standards, the social impacts of doing
business in Africa come often ‘automatically’.
Make sure to think this through as
high impact enterprises not only
contribute to a better globe but often
make it easier to navigate you through
the regulatory system and get the goodwill
and support of many stakeholders.
1 2 3
Get localized
advice
It can be challenging to have to cope
with local regulations, to file local tax
applications and deal with local HR
rules. To get a trusted local advisor will
always bring you gains. Baker Tilly Berk
has a network of local advisors established
for many years.
Go on an NABC
Trade Mission
Finding the right business partner is
often a critical factor for success in
unknown markets. While a trade
mission of course can’t guarantee a
successful connection but it certainly
improves your chances. Tailor-made
matchmaking, executed by local consultant
firms and partners of NABC do yield
between 5-10 useful connections within
this foreign market. Company and/or
conference visits and business seminars
will give you a feel and a grip on the
local context. A Trade Mission opens
also many other doors and gets you to
meet like-minded entrepreneurs from
the Netherlands that will strengthen
your support network in new markets.
4 5
Africa’s Pulse
- African Union Commission. Program Infrastructure Development for Africa (PIDA).
- AFEO, 2015: African Economic Outlook 2015: Resilient economies, positive forecast for West Africa.
- African Economic Outlook: “Table 7 - Exports, 2010”.. Retrieved 2 March 2013.
- African Union Commission, Program Infrastructure Development for Africa.
- BBC, “Africa creates TFTA - Cape to Cairo free-trade zone” 10 June 2015.
- Claire Schaffnit-Chatterjee, Agricultural value chains in Sub-Saharan Africa from a development challenge to a business
opportunity, 2014.
- Deloitte (2016). Becoming an African Champion Ingredients for business success.
- Ernst & Young (2013) Africa Attractiveness Survey.
- European commission, 2015. Economic Partnership Agreement between West Africa and the European Union.
- Fred Magdoff, Twenty-First-Century Land Grabs: Accumulation by Agricultural Dispossession, Monthly Review, 2013,
Volume 65, Issue 06 (November).
- KPMG. “Mining in Africa Towards 2020”.
- NEPD2013, Agriculture in Africa
- Oliver August (2 March 2013). “Africa rising a hopeful continent”. The Economist. The Economist Newspaper Limited.
- Sarl, Etnium, ed. (2013). “2013 Guide economique du continent Bourses Africaines”. AFRICA 24 Magazine (8): 12–3.
ISSN 2114-2610.
- World Bank, 10 May 2016.
- World bank Data. “GDP (current US$) | Data | Table”. Data.worldbank.org.
- Zamfir, I. (2016). Africa’s economic growth. European Parliament Research Service, European Union.
Bottlenecks & Risks doing business in Africa
- Pew Research Center (15 April 2015). Cell Phones in Africa: Communication Lifeline.
- Ross, E. (4 August 2015). Four ways mobile phones have transformed life in Africa.
- Zamfir, I. (2015). The Tripartite Free Trade Area project. European Parliamentary Research Service.
West-Africa
- ECOWAS
- OECD, 2006. The Organization for Economic Cooperation and Development, The socio-economic and regional context of
West African migrations.
- World bank, 2013. Agriculture Development in West Africa: Improving Productivity through Research and Extension.
- World Bank, “West Africa: Facts and Figures”
East-Africa
- Dahir, A.L. (2016). The number of tech hubs across Africa has more than doubled in less than a year. Quartz Africa.
- European commission, 2016. Commission proposal for conclusion, signature and provisional application of full EPA Agreement
with the East African Community.
- Hutt, R. (7 April 2016). 5 things to know about Rwanda’s economy. World Economic Forum.
Southern Africa
- SADC, 2012. Southern Africa development community.
References
2w0ww.bakertillyberk.com/africadesk www.nabc.nl
Baker Tilly Berk
Marijn Verhagen
T +31 (0)73 613 16 86
NABC
Irene Visser
T +31 (0)70 304 36 18
‘We encourage all Dutch companies
to consider investing in Africa.
NABC and Baker Tilly Berk are
always there to provide guidance
or answer your questions.’
Irene Visser - NABC
Marijn Verhagen - Baker Tilly Berk